Covance guns for more late-phase contract wins to drive growth

Since being acquired by LabCorp​ in 2015, Covance has worked to expand its clinical-phase business, notably through the $1.2bn (€1.1bn) acquisition of Chiltern​. However, some aspects of Covance’s push into clinical services have been more successful than others.

Adam Schechter, who took over as president and CEO of LabCorp last year, used the J.P. Morgan Healthcare Conference to set out the progress he wants Covance to make under his leadership.

Schechter said, “My plan would be that we start to win more registration trials, more Phase III trials. We have done really well in early​-stage trials but we haven’t seen those early​-stage trials turn into registration trials often enough​.”

As Schechter sees it, Covance already has the infrastructure in place to be more successful at winning late-phase business. Buying Chiltern filled in some geographic gaps in Covance’s network, expanded its oncology capabilities and positioned it to serve as a functional service provider.

Schechter is still looking for add-ons to improve Covance but, with the key pieces in place and buyout multiples high, the CEO sees few opportunities that make sense financially. Rather, the focus is on making better use of Covance’s existing capabilities.

Margin improvement is one area of focus. Again, Schechter sees a difference between how Covance is managing the margins of its early- and late-phase businesses.

Schechter said, “We do well in certain parts like early drug development, not as well on our margins in later development. So​, I think we still have opportunities to do better with the margins​.”

The focus on margins is taking place against the backdrop of an ongoing effort to make best use of the complementary capabilities of Covance and LabCorp, a clinical laboratory.

Some analysts questioned the wisdom of combining the businesses in 2015, but the direction taken by life sciences and healthcare since then has allowed LabCorp to point to examples of why the deal makes sense.

Schechter said, “I think we are at a unique period in time. I think with oncology and gene and cell therapy, customers want to know who’s going to respond to which medicine. Customers are saying, ‘I want to make sure that I’m using these medicines in people who I know are going to get benefit​’.”

This line of thinking is leading companies to try to bring new drugs to market alongside biomarkers and companion diagnostics. Schechter thinks that will lead to more clinical development programs focusing on biomarkers, driving the industry in a direction that plays to the combined strength of LabCorp and Covance.